By Deborah Nelson, M.B. Pell and Joshua Schneyer
WASHINGTON (Reuters) – The U.S. Army, Navy, Air Force and Marines unveiled a proposed tenant bill of rights on Wednesday that would hand more power to military families facing housing hazards and place enhanced scrutiny on private landlords drawing billions in fees from their military partnerships.
The measure, jointly released by the services in advance of Senate hearings scheduled for Thursday morning, could usher in a major overhaul of the military’s two-decade old housing privatization program. Among other steps, it will require the military to renegotiate contracts – worth billions of dollars – with the real estate companies and bondholders who back the deals, Secretary of the Navy Richard Spencer said in an interview.
“The fact that we took the eye off the ball allowed this to perpetuate itself,” Spencer told Reuters. “The fox guarding the hen house.”
The tenant measure was prompted by a Reuters series, Ambushed at Home, that detailed how thousands of U.S. military families have been subjected to serious health and safety hazards in their on-base housing – rampant mold, lead poisoning risks, pest infestations – but have only limited tenant rights under the military’s confidential contracts with private landlords.
Read the series at: https://reut.rs/2t1Y2UA
The proposal will impose new controls on the landlords operating on military bases, Spencer said.
A draft of the document, signed by the secretaries of the Navy, Army and Air Force, proposes several measures. One would allow military base tenants to withhold rent payments from landlords if housing troubles persist, potentially resulting in refunds. Other provisions would guarantee tenants’ access to housing advocates when they dispute landlords, or allow them to move, at no cost, to “suitable lodging” if repairs aren’t made.
Spencer said the Navy will also seek independent assessments of the companies’ home maintenance programs through a new inspection process.
In the private-public ventures, the Navy and other branches teamed with real estate firms, who took responsibility for managing more than 200,000 family dwellings on bases. The partnerships receive nearly $4 billion in annual rent payments.
“We’ve got a little too much of the partner inspecting itself,” Admiral John Richardson, Chief of Naval Operations, told Reuters.
The bill’s critically important fine points are still to be worked out. For instance, Spencer said, enacting it would require renegotiating 50-year contracts awarded to private landlords with vast control of base housing. Also being sorted out: the price tag associated with this and other military housing reforms, and who will pay for them.
Changing the contract terms would represent a sea change, and could trigger wrangling between military branches, real estate firms and Wall Street players, all with financial stakes in the ventures.
In a statement Wednesday, the military branches said the bill “will be enforced through renegotiated leases” with contractors, and that the measure “will be implemented in the coming weeks.”
BILLIONS AT STAKE
Under the contracts, the government housing stipends given to service members who live on base are usually deposited directly into accounts controlled by the private-public venture landlord. Changes to that arrangement – including withholding rents – could affect cash flow to the ventures, and the credit risk of their debt.
The housing ventures, designed to revitalize deteriorating base housing, were backed with at least $15 billion in loans from major banks. Changing their terms could require agreement from bondholders and other financial firms.
One major firm with exposure to the military housing bonds said it is watching developments. “We are monitoring the situation and are eager to evaluate initiatives,” said Gregory Diamond, head of Investor Relations at insurance firm MBIA Inc, which has insured $7.2 billion in military housing bonds.
Also up for re-negotiation, according to Navy and Army brass: the fees private real estate firms receive, some of which are based on performance.
Since Senate hearings focusing on housing issues last month, the Navy’s Spencer has visited families at bases in Virginia and North Carolina. He said he saw “atrocious” repair work in some homes at Naval Station Norfolk, where Lincoln Military Housing is the landlord.
“You kind of go, ‘Wow, why didn’t you just do it right the first time?’” Spencer remarked.
In a statement Wednesday, Lincoln President and CEO Jarl Bliss said the company is “committed to improving the living experience in all our base housing.”
“We share the Navy’s commitment to making things better for soldiers and their families, and we are working with them on a number of reforms,” Bliss said.
Brenda Michael was among those Spencer visited last week. Michael says she has lived with her Navy husband and three daughters at Norfolk Naval Station since 2016, at times battling Lincoln over inadequate heat and other problems in her house.
Last week, Spencer saw her problems up close. Now, Michael said, she believes her concerns, and those of other military families, have been “validated.”
(Additional reporting by Andrea Januta. Editing by Ronnie Greene)